There's No Business Like the Hi-Fi Business Page 2

If you want to go all the way with a "statement" store, you might need two or three million to really do it right. Got an easy source for quick liquid capital? There's always your rich great-aunt, parents, in-laws, your savings, a second mortgage on your home, your local importer of recreational pharmaceuticals, or the lottery. Many eager entrepreneurs have tapped such sources.

The bank, a common supplier of start-up funds, will want you to provide proof of your stability and good intentions with a well-thought-out business plan that will answer some fundamental questions: What do you intend to sell? Who's going to buy it? Where will you locate this business? What is its projected revenue? How will you pay back the loan? Countless new retail businesses, and plenty of wholesale ones, have gone under because their owners could enthusiastically answer the first question but had no clue to the second.

Audiophiles as customers
An example: You and your friends are audiophiles. You imagine that you could make a decent living selling high-end products to other audiophiles. The trouble with this is that your enthusiasm for the hobby makes you overestimate both the number of audiophiles and their willingness to spend money. They are bargain-hunters just like you. They will take up all your time on the phone or in your store, then buy used or mail-order or gray-market gear. If you do succeed in selling something to an audiophile, you've opened another can of worms: soon he'll be back wanting to exchange it for something else, because he'll be fundamentally unhappy.

Even though your intent is to promote and encourage and profit from audiophilia, you need to be aware that business done with audiophiles will account for only a small fraction of your revenue: a ton of work for an ounce of profit. The bulk of your profit-producing transactions will be with ordinary music and movie lovers who really don't care that some exotic thousand-dollar-per-inch interconnect reveals astounding inner detail, who just want a good-quality system that works every time they turn it on.

To bring them in, you must offer Home Theater. That means video, something you probably wanted to avoid, and for good reason. It's not something you associate with the refined pleasures of music, and for the most part, it's not very profitable. But it's something every consumer relates to. Every department store, furniture outlet, buyers' club, and home-appliance warehouse sells video, and sells it cheap. As a small independent, you won't be able to compete against Circuit City. Mass marketers' huge purchasing power means they can cut a better deal with a manufacturer than you can. And because they turn over a big volume, they can afford to take a smaller profit on each piece. They also make money through financing, a service you can't afford to offer. Be warned: With the exception of a few elite products, there's no money to be made in video.

The danger zone
Home Theater also means custom installation. And custom installation means remodeling fancy homes and apartments. You didn't get into the audio business to be a remodeling contractor, but that's exactly what you'll have to be if you want to compete. Now you've entered the danger zone, where you have two choices: either subcontract all your installations, or do them yourself. Both have advantages and disadvantages. By subcontracting, you limit your expenses, and to a small extent your liability, but risk losing control of your projects. In the very high likelihood that your sub decides midstream he'd rather work for someone else, your credibility will take an irreparable nosedive.

Your only other choice is to undertake all your installations yourself. Hint: If you're not a hands-on type, well-grounded in the fundamentals of construction work, don't even think about going into this business. Most communities require, as they should, that you obtain a slew of licenses and insurance before you pull your first wire through a wall. If you step through a ceiling or, as an installer friend of mine did, drill into a hidden electrical line, you are liable for repairing the damage. Installation work is a bit like playing Russian Roulette; the odds are in your favor, but when they turn against you the results can be disastrous.

Accidents will happen: before I left Atlanta for the West Coast, this same overscheduled friend referred me to one of his customers, a hot TV producer who had been lured away from New York. The producer had just moved into a spacious third-floor apartment in the nicest part of town and wanted his audio system installed—equipment in a hall closet, speakers in living room, den, and bedroom, all the wiring to be hidden.

Pretty simple, I thought, and agreed to do the job the next Sunday afternoon. All went quickly and smoothly. While the producer was out I pulled wires through walls and under rugs and tucked them behind baseboards. The last run of wire was through a well-packed closet housing the water heater. As I reached up to drive the last tack, I dropped my hammer and broke off the plastic drain plug on the bottom of the heater. Fifty gallons of boiling hot water gushed out against my ankles and onto the kitchen floor. I couldn't stop the flow: the shut-off valve was out of reach behind the heater. First hot, then cold water flowed out onto the floor. I tried calling the building's supervisor: no luck, he was out of reach on Sunday afternoons. I found a broom beside the refrigerator and jammed the handle into the leak, slowing but not stopping it.